Pakistan vows to wipe out power debt in six years

ISLAMABAD: Pakistan’s power sector circular debt, a multitrillion-rupee burden on the economy, will be “completely eliminated within six years,” Minister for Power Division Awais Leghari said Friday, as the government pushes ahead with reforms backed by the International Monetary Fund (IMF).

Leghari told reporters that consumers will continue paying a Rs3.23 per unit surcharge to retire debt but assured the levy “will also end within five to six years instead of the eight to 10 years originally projected.”

He said circular debt had been reduced to Rs1.614 trillion by June, down by Rs780 billion in a year. “This includes Rs363 billion in savings from talks with IPPs, Rs242 billion saved from curbing losses, and Rs175 billion in savings due to lower interest rates after the economy began to stabilize,” Leghari said adding, “Within six years, the circular debt will cease to exist.”

The minister credited a landmark restructuring deal with 18 banks covering Rs1.225 trillion of debt under more favorable terms, ensuring interest rate savings of 3.5 to 5.5 percent. “This is a historic step,” he said, adding that the plan had been discussed with the IMF and incorporated into Pakistan’s program targets. “Today again, we spoke to the IMF mission in Islamabad about progress,” he said.

Leghari noted the debt had swelled from Rs1.1 trillion at the end of the PML-N government in 2018 to Rs2.25 trillion by 2022, and further to Rs2.4 trillion when the coalition took office. “Through tough reforms and negotiations, we have brought it down,” he said.

He argued that reducing circular debt would not only stabilize the power sector but also create fiscal space. “By reducing it, we are not only stabilising the energy sector but also creating fiscal space for agriculture, SMEs, housing, education, and health,” he said.

Leghari said distribution companies were showing improvement, industries were getting electricity at 38 percent lower rates, and 18 million households were benefitting from reduced tariffs. However, he warned that solar net-metering tariffs had created “a dangerous imbalance” and needed revision to ensure fairness. “Pakistan’s economy depends on its energy sector,” Leghari said. “By resolving circular debt, we are laying the foundation for long-term growth and stability.”